EuroEconomica, Vol 37, No 3 (2018)

Abstract

This paper discusses critically the dynamics of public debt, both domestic and foreign, in Zambia and how it has influenced that economy’s growth process over the period from 1964 to 2015. The structural and institutional reforms and legal and public finance administrative frameworks that have shaped the level, structure, and composition of public debt stock in Zambia over the review period are also highlighted in the paper. Two distinct episodes of public debt were identified: (i) from 1980 to 2004, in which public debt exceeded gross domestic product; and (ii) from 2005 to 2015, in which the country received considerable public debt relief and experienced an economic rebound. Although Zambia’s government debt is currently sustainable according to IMF/World Bank indicative thresholds, the country like other lower middle-income countries is still experiencing some debt management challenges emanating from weak debt institutional frameworks. The study, therefore, recommends that the government (1) limits both domestic and foreign borrowing to reduce high interest payments on debt in future; (2) aligns its infrastructure expenditures with domestic revenues to ensure budget sustainability; (3) implements and adheres to cash budgeting system to control fiscal deficits; and (4) improves on domestic revenue collection mechanisms by diversifying the economy.